Insight 43 - Magazine - Page 41
"There is little to
cheer in the services
sector, as companies
struggle with falling
activity, rising cost
pressures, and
constrained margins"
BUSINESS & PROFESSIONAL SERVICES
• Optimism about the general business
situation again fell for the second quarter
running, at the joint-fastest pace in just
over two years (-28%, from -29% in
November 2024).
• Business volumes continued to decline
for the third month running (-26%,
from -16% in January), with the pace of
decline picking up. Volumes are expected
to decline again over the quarter ahead,
albeit at a slower rate (-14%).
• Growth in total costs per person
employed remained elevated in the
quarter to February (+46%, from +42%
in November 2024). Although growth in
costs per person has remained below
the record peak seen in 2022 (+69%),
it remains historically strong, with the
balance standing well above the longrun average (+30%). Cost growth is set
to accelerate significantly next quarter
(+68%).
• Average selling prices rose modestly in
the three months to February (+9% from
+6% in November 2024). Again, while
well below the peak seen in 2022 (+31%),
the balance stands above the long-run
average (-3%). Firms anticipate faster
price hikes next quarter (+19%).
• Profitability fell strongly (-37%), at the
fastest pace since August 2020 (-46%),
whilst also marking four years of
continuous decline quarter upon quarter.
Profits are expected to decline at a
similar pace over the next quarter (-36%).
• Headcount declined moderately for
the second consecutive rolling quarter
(-6%). Headcount is expected to decline
moderately again in the quarter ahead
(-12%).
• Firms anticipate significant cutbacks
in investment in both land & buildings
(-21% from -7% November 2024) and
vehicles, plant & machinery (-21% from
-9% in November 2024). However, firms
continue to expect more investment in IT,
with spending plans firming in the latest
quarter (+19% from +6% in November
2024).
CONSUMER SERVICES
• Optimism about the general business
situation continued to deteriorate sharply
in the quarter to February (-55%, from
-55% in November 2024), marking the
joint-fastest decline since August 2022
(-64%).
• Business volumes declined in the quarter
to February (-53%), continuing the trend
seen through much of the previous
three years. Firms expect the decline in
volumes to continue at this pace next
quarter (-55%).
• Costs continued to rise at a robust pace
in the three months to February (+55%,
from +44% in November 2024). Firms
expect costs growth to accelerate sharply
next quarter (+75%).
• Average selling price inflation picked up
in the three months to February (+36%)
compared to November 2024 (+10%).
Average selling price growth is expected
to increase more significantly next
quarter (+48%).
• Profitability continued to fall solidly,
albeit at a somewhat slower pace
(-35%, from -41% in November 2024).
Nonetheless, this marked four years of
continuous decline. Profits are expected
to deteriorate over the next quarter, at a
faster pace (-55%).
• Employment continued to fall amongst
consumer services firms in the three
months to February (-35%, from -41%
in January), with the balance standing
well below the long-run average (+0%).
Numbers employed are expected to fall
at a faster pace in the three months to
November (-53%).
• Consumer services firms expect to make
significant cutbacks to investment on
land and buildings (-35% from -21%
in November 24), vehicles, plant &
machinery (-34%, from -28%) and IT
(-32%, from -4%).
Alpesh Paleja, Deputy Chief Economist,
CBI, said: "There is little to cheer in the
services sector, as companies struggle
with falling activity, rising cost pressures,
and constrained margins. While
businesses are grappling with the rise in
employment costs from measures in the
Autumn Budget, it's clear that underlying
demand conditions remain weak too. In
particular, the much deeper weakness
in consumer services firms points to
a cautious spending mindset among
households.
"Looking ahead, the recent recovery
in real household incomes should
give a lift to some services companies.
Positive plans for IT spend in business &
professional services also point to firms
prioritising investment in their future. But
given how weak our survey data is across
the board, it's clear that more needs to be
done to catalyse growth in the UK's largest
sector.
"In a tough economic environment, the
government is right to make kickstarting
growth a key priority and business stands
ready to help it deliver on that pledge.
With the right levers in place, like long
overdue changes to the Apprenticeship
Levy to match skills to economic needs or
accelerating to net zero, the sustainable
growth essential for raising living
standards, improving public services and
boosting business confidence can be
achieved."
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